Tesco, Asda price cuts pressure producers

A fresh round of price cuts from the two biggest UK food retailers increases the pressure on suppliers’ margins and intensifies competition between own-label and branded producers, forcing them to find new ways to adapt.

A fresh round of price cuts from the two biggest UK food retailers increases the pressure on suppliers’ margins and intensifies competition between own-label and branded producers, forcing them to find new ways to adapt. British number one Tesco has announced it will launch a new round of price cuts worth £67 million, affecting a range of its private label products from corn flakes, crisps and coffee to ice cream and liquorice allsorts. The move was followed by Asda, owned by US group Wal-Mart and now the UK’s number two food retailer, which promised to make a further £100 million worth of price cuts across its stores, meaning the firm will have made £231 million worth of cuts in the first half of 2005. The reverberations of this latest price battle will be felt right through the supply chain across both private label and branded portfolios, making cost-saving strategies more important than ever for producers over the next year. Private label supplier of fresh foods, Geest, said in its 2004 results that retailers had “focused on price to an unprecedented degree,” in 2004, forcing the company to speed up cost-saving initiatives launched to protect margins at the end of 2003.